In the nearly 10 years between the first and second decades of the 20th century, the automobile completely replaced horses and horse-drawn carriages in New York City. It is entirely plausible that the cart-makers, the blacksmiths, the makers of the horseshoes and metal parts of carts, the workers of the clothing stables, the suppliers of oats and hay for the horses, the workers whose job was to clean up the mess every Thousands of horses flocked to the city streets every day, and many others felt distressed by the technological paradigm shift that had made their jobs redundant. Some may have objected. But cars continued to roll out, in greater numbers, sometimes more powerful and sometimes more affordable. Horses from the past were turned into quirky showpieces.
Distributors who threaten to boycott Hindustan Unilever and Colgate-Palmolive because these companies offer distributors bigger discounts than newly organized business would do well to consider this bit of history. Distributors’ pain is genuine, their claim, valid; But without solutions, given the unstoppable march of technology. They have to adapt, trying not to return to the ankle-deep piled roads in horseshoes.
Large e-commerce platforms and newer B2B players, such as Udaan, Elasticarn, Jumbotel, and cash-and-carry players such as Walmart Best Price, Metro Cash-and-Carry, and JioMart, now compete with traditional distributors to supply Huh. Grocery, retail stores from where customers purchase their requirements of Fast-Moving Consumer Goods (FMCG) are creating a fundamental shift in the business of distribution. They are shortening the supply chain and making it more efficient. Agitator technology cannot prevent disruption on the part of traditional distributors. Right now, the traditional mode of distribution accounts for about 85% of the volume, but things can change rapidly. It took almost 10 years for horse carts to disappear from New York City.
Distributors make mistakes in two cases. While they oppose a large amount of discounts compared to newly organized business, they are fighting against the same principles on which distribution business is organized. Each layer of the distribution chain gets a value associated with the volume of transactions it carries. The person at the top of the distribution hierarchy gets the goods at a price less than what he charges the person below him immediately, and so on. The modern business buys more in bulk than the largest traditional distributor, and therefore enjoys great discounts. To oppose it is to question their own business model.
The second mistake is that traditional distributors assume that if they get goods from FMCG companies at the same price at which modern trading entities receive them, they will be able to compete with modern trade for custom retail outlets. they can not. Because modern business also uses better logistics and some of them help retail outlets to develop themselves, give them capital and provide technical inputs.
Ultimately, the business model eliminates some of the costs and shares the savings with the end-customer and end-retailer. This improves collective welfare. The only way traditional distributors can stay in business is to organize themselves into versions of the big, technology-driven players they now oppose. In the face of creative destruction, it is their choice, whether to be creative or self-destructive.
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